By Xav de Matos, Director of Editorial + Community | Follow Gaming Insiders on Twitter
Activision Blizzard has announced its intention to purchase Candy Crush Saga maker King Entertainment for $5.9 billion, giving the PC and console behemoth a major stake in the mobile games space in one fell swoop. The deal is the biggest the industry has seen in recent years, eclipsing Microsoft’s $2.5 billion purchase of Minecraft developer Mojang last year.
Although Dublin-based King failed to replicate the success of its Candy Crush series with a number of follow-up titles, the deal gives Activision an immediate major presence in a mobile market that is expected to grow 21 per cent this year, according to research firm Newzoo.
Experts within the Gaming Insiders community were quick to react to the landmark deal, discussing the value of Activision’s acquisition and how the two portfolios could work in tandem.
Greg Richardson, Founder and CEO at Rumble | @
The price tag makes complete sense for both parties: A 20% premium is often considered the minimum threshold required to get shareholder approval from a public company and signals that King’s shareholder base was happy to be bought and were not seeking the type of larger premium reflective of a company with an obvious and bright future. For ATVI, the acquisition was accretive. The multiples applied to ATVI against both revenue and profit will ostensibly allow them to see a larger gain in market cap than the price of this transaction
Strategically, it’s harder to understand ATVIs vision for King. Do they see something King’s shareholders don’t with regard to a future beyond Candy Crush Saga? Given ATVIs IP and audience demographic, it’s unclear how leverage able King’s brand, IP and publishing assets on mobile and the web will be for ATVI. Yes, ATVI gets portfolio and market diversification both in terms of devices and audience but it’s not an obvious 1+1 = 3 recipe that you often see driving transactions of this size.
I’m not sure that this deal has a great deal of impact on either King or ATVIs direct competitors. In the interim, ATVI can lay claim to being the largest pure gaming content company on the planet in terms of both revenue and profitability (TenCent’s distribution platform makes an apples to apples comparison challenging). King’s development resource and talent base don’t feel well positioned to bring ATVI IP to the mobile market so mobile publishers focused on a core audience would not seem to have much to fear. And ATVIs leverage of Candy Crush outside of King’s current channels is not clear either.
ATVI seems to have bought a strong near term revenue and profit business and one that allows them to tell a story of being a market leader across the PC, Consoles and now Mobile markets. The three to five year outlook against the value of this transaction feels murky to me and one that will challenge both King and ATVIs management team in the coming days.
Atul Bagga,Vice President & CFO – Asia at Zynga| @atulbagga
As an analyst, [Activision Blizzard] was one of the companies that I admired the most – it consistently outperformed expectations and managed to grow despite tough comparable, reflecting on a strong management and solid execution. Most importantly, I liked ATVI because of the company’s focus on business fundamentals i.e. cash flows (likely stemming from management’s comp structure that awarded incentives for FCF rather than rev growth).
Historically, ATVI was less acquisitive than its peers and when it did so, the acquisitions made a lot of sense – Red Octane, Blizzard. To me, King acquisition makes sense:
A) The acquisition gives ATVI bragging rights of being leading mobile game company
B) Spreads ATVI eggs in new basket – more mobile and more casual – something that investors have long been demanding of ATVI
C) Is accretive to ATVI from day one
D) Both companies share similar culture – both are focused on large franchises, both focused on creating some of the most polished and fun products, both run by some of the smartest business and design focused management teams.
Agree with Greg’s point about price. In addition, paying 6x EBITDA [Earnings Before Interest, Taxes, Depreciation and Amortization] doesn’t look outrageous. While some maybe concerned about CCS decline, CCSS shows that the company’s ability to keep franchise afloat.
Also, I think King acquisition should help get some investor love and interest back in to game sector, helping all companies in the ecosystem.
Keith McCurdy, CEO and co-founder of Golden Gate Games (G3) | @KeithMcCurdy
The beauty of buying a company vs. buying shares, you get to see inside the kimono. I cannot believe they did not some see something very interesting in their due diligence. The company buyers have basically more information than the public markets.
I don’t think this has anything to do with cross promotion. It is just about size, diversification, and some unknown upside they see that is not publicly known yet. As for size, as Greg [Richardson] mentions and EA and Activision people know, it is important to both Larry [Probst] and Bobby [Kotick] which company is bigger in revenue.
Andrew Stalbow, CEO and Co-Founder at Seriously | @stalbs
Activision has traditionally been a major player in the console space and the acquisition of King will give them the world’s biggest mobile game network and a very strong, if slightly declining, revenue stream. This acquisition also validates the huge potential for the future of mobile games and the extension of entertainment brands in your pocket. Aligning King’s free to play capabilities and its well managed network with Activision’s ability to build brands like Skylanders, is a unique match.
King has built a massive franchise with Candy Crush, and I believe there are big opportunities for Activision to capitalize on King’s mobile network, use Candy Crush’s revenue stream, build the franchise out (Candy Crush Ice Cream Saga anyone?) and use the platform to promote their next round of games.
Michael Pachter, Managing Director, Equity Research Wedbush Securities | @michaelpachter
I think the comparison to Marvel is a particularly poor one. That company had only $500 million in revenue and made only a $100 million profit in its biggest year before Disney acquired it. The purchase price was something like 8x revenue and 40x profits, so the Activision purchase of King is a bargain by comparison. I know we’re all in love with Marvel’s characters, but they required tender loving care from talented filmmakers to generate the value that they have under Sony and Disney stewardship, and as Emily points out, the value added by those companies was immense. Lucas wasn’t public, and Pixar had only lumpy revenues, but the comparisons are looking in the rearview mirror with the hindsight of what Disney has done with them. The same argument could be made about Instagram being a bargain compared to King, but Instagram was pre-revenue at the time and probably still is.
Value is in the eye of the beholder, and Bobby Kotick has seldom overpaid anyone for anything. I think this was a good deal.
I think that the problem most naysayers have with the deal is the dollar amount, and if it was just a purchase of IP (as it was pretty much for Lucas, Pixar and Marvel), then several billion is the right number. If it is a purchase of a revenue stream with less valuable IP, that confuses a lot of people.
I’m a big fan of Rob Fahey from GamesIndustry.biz, but he’s far from a financial analyst, so should not be talking about the “wrong price” for the deal [in his recent editorial].
James Gwertzman, CEO & Co-Founder at PlayFab (Formerly GM for Asia/Pacific at PopCap) | @gwertz
I saw [a] reference to PopCap and had to jump in since I’ve been mentally comparing them as well.
In the two years following the acquisition, I think consensus might have been that the deal wasn’t really that great for EA. There was a big talent exodus, anticipated games like Plants vs. Zombies 2 didn’t do as well as expected, and Candy Crush saga came out and showed what Bejeweled could have been if it had perhaps been more aggressive or better understood F2P.
Also, culturally, the organizational integration was pretty jarring. There was this slightly awkward dance of “keep PopCap separate” and “integrate PopCap completely into EA systems” that felt at times schizophrenic. I can’t imagine two companies with more different cultures, at least at that time. Also I think part of the motivation at that time by EA, and why they paid so much, was to keep PopCap out of the hands of Zynga, and even just a few years later that suddenly didn’t seem so urgent anymore.
However, once PopCap got past the earn-out, and once everyone who was going to leave had left, I think things have stabilized, and the people who are there now seem pretty happy. Also PopCap is learning how to take advantage of all the resources of EA.
I think Plants vs. Zombies: Garden Warfare, for example, is a fantastic game, and exactly the sort of collaborative project that would never have happened by PopCap alone – and it’s been very successful. And I think PvZ 2 has gone on to find its legs and is performing better than it did when it first launched. And I know that there are a bunch of new projects in development which people seem pretty happy about.
So overall I think the PopCap deal now is probably seen pretty positively.
If you asked folks whether the PopCap deal was a good one two years ago, I’m guessing people might have said no. Since the deal went down, there’s been a pretty large talent exodus – many of the people who were at PopCap at the time of the deal are gone, and from the outside there hasn’t been as much noise about PopCap as there once was.